Compliance Center: NCUA Outlines Plans for Adding ‘S’ to Credit Union CAMEL Ratings

The National Credit Union Association’s (NCUA) Office of Examination and Insurance recommended the NCUA Board consider releasing a proposal in the coming months to incorporate an “S” for “sensitivity to market risk” into the current CAMEL rating system for credit unions.

The CAMEL rating system, which evaluates a credit union’s overall condition, measures five critical elements: capital adequacy, asset quality, management, earnings and liquidity. Overall CAMEL scores range from 1 (sound in every respect) to 5 (extremely unsafe and unsound).

Presently, NCUA assesses interest rate risk as part of the liquidity rating. Federal banking supervisors, however, already include an “S” in the rating system, as do 16 state credit union regulators (including Washington State). Five additional state credit union regulators are working to adopt this approach.

NCUA considered the addition of the “S” element when bank supervisors first adopted it, but opted not to do so based on the relative lack of complexity in credit unions’ balance sheets at that time. However, examination and insurance staff believe the changing size and complexity of the credit union system warrants its adoption now.

“This idea has been discussed for several years, and the time is ripe to make a formal proposal,” NCUA Board Chairman Rick Metsger said. “If we do this, it will require NCUA to reprogram several internal systems and make revisions to supervision programs and existing documents, but the benefits appear to outweigh those costs.”

Examination and insurance staff told the Board that the benefits of adding the risk sensitivity element include greater clarity, accuracy and transparency in how interest rate risk is assessed. Staff recommended the agency draft and issue a proposal for public notice and comment. The comment and review process, subsequent program changes and implementation would take several years.

The agency’s Office of the Inspector General last year also recommended adoption of the sensitivity element, and the agency’s Executive Director agreed, making a commitment to present a proposed regulation change to the Board by the end of the third quarter of 2016.

Final implementation could be made by 2018.

Compliance Question of the Week

We received a garnishment for a member. When we called to let him know that we were holding the funds for the garnishment, he told me he was in the process of filing bankruptcy. Can I still honor the garnishment?

Yes. In both Oregon and Washington, the mention of filing bankruptcy has no bearing on the garnishment until a bankruptcy has actually been filed. If the member is simply talking with an attorney, the credit union will need to honor the garnishment order. The credit union is not protected from liability if it does not comply with the garnishment order.

Related Links

ORS 18.618

RCW 6.010.050


Legal Briefs

National Credit Union Administration (NCUA)

The NCUA issued a reminder to eligible credit unions regarding the deadline for the Community Development Revolving Loan Fund. Credit unions have until June 30th to apply.

NCUA Chairman Metsger discussed the statement by the Financial Stability Oversight Council’s 2016 report that reaffirmed the recommendation that the NCUA have authority over third-party vendors.

The NCUA announced that it will host a micro-enterprise lending webinar. The webinar will be held on Wednesday, July 13th. Credit unions interested in attending the webinar can register here.

Consumer Financial Protection Bureau (CFPB)

The CFPB issued a special edition of its supervision report focused on mortgage servicers. CFPB examiners specifically noted that there were issues with loss mitigation and servicing transfers.

Federal Reserve Board (FRB)

The FRB delivered its semiannual Monetary Policy Report to Congress.

The FRB released the results of its most recent stress test.

Federal Housing Finance Agency (FHFA)

The FHFA released its monthly House Price Index report, showing that house process rose 0.2 percent in April.

Office of the Comptroller of the Currency (OCC)

The OCC released a bulletin on the joint agency proposed rule regarding incentive based compensation. The bulletin provides a high-level overview of the requirements of the rule.

Government Accountability Office (GAO)

The GAO issued a report stating that the IRS should make updates to its Taxpayer Protection Program (TPP). The report found that the IRS had not uprated its risk assessment since 2012 and recommended that the IRS update its risk assessment to reflect the current thread of identity theft.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of June 23, 2016. The last update prior to this was June 9, 2016.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, NCUA, NWCUA.